The Dutch are well known for Delft pottery, wooden shoes, legalized prostitution and windmills. Perhaps not surprisingly, many of those things haven’t caught on in all areas of the world (oh c’mon, tell me that you have a pair of wooden shoes in your closet).
I have a feeling that list of things that aren’t spreading like wild fire is about to grow…
Effective in 2012, Dutch drivers will be monitored by GPS and will pay taxes on a per-kilometers-driven basis. For the average passenger car, the rate will be about € 0.03 per kilometer (or roughly $.07 US per mile). Drivers of trucks, commercial vehicles and less fuel efficient cars will pay more. Public transit and cabs will be exempt from the tax.
Additionally, the cost will increase for drivers at peak times.
How will it work? GPS will track the time, hour and place each car moves and send the information to a billing agency. The billing agency will deduct the taxes directly from drivers’ accounts.
If it works as anticipated, the Dutch government estimates that traffic will drop by 15% – and rush hour traffic will drop by 50%. Minister of Transportation Camiel Eurlings believes that carbon emissions will be cut in half.
Interestingly, the law will abolish current road taxes and sales taxes for cars. The final numbers should work out so that 6 out of 10 drivers are better off under the new scheme and reportedly, tax revenue will remain the same.
According to the German newspaper, Deutsche Welle, the tax will increase every year until 2018.
The news has stirred interest in nearby Germany with top German automotive expert Ferdinand Dudenhoeffer saying that Germany should “take the progressive (Dutch) model as an example.” Interesting for sure. But there’s one or two (or three or four or five) obstacles: namely Audi, BMW, Mercedes, Porsche and Volkswagen. Long considered an automaker’s paradise, Germany tends to be known for heavier, more luxurious, power cars – not so much the cheaper, smaller more efficient cars encouraged under the Dutch scheme. With that in mind, in a tough economy, Germany is highly unlikely to adopt a policy which might negatively affect the car industry any time soon.
But that doesn’t mean that it’s not on the radar of other countries. Singapore already utilizes Electronic Road Pricing, a pay-per-use principle, and in the UK, there is a congestion charge for some drivers in the designated Congestion Charge Zone (CCZ). Which makes you wonder… Which country, if any, will be next?
“Lesen Sie es von meinen Lippen ab, keine neuen Steuern.”
(translation: Read my lips, no new taxes.)
Okay, maybe German Chancellor Angela Merkel didn’t actually say that – but that was the gist of her message when she made a play for a second term. And it worked.
With Germany suffering through its own economic woes, taxes were a big issue in the current elections. Merkel’s opposition dug in their heels over a scheme to raise taxes on the top wage earners (hmm…. where have we heard that before?). As a result, the SPD (the party of Steinmeier, Merkel’s challenger) suffered its biggest loss since World War II.
Merkel, on the other hand, promised across-the-board tax cuts of 15 billion euros ($22 billion), claiming that she wants to be the “Chancellor for all Germans.” She also claimed that she would cut the lowest tax rate from 14% to 12% – it is 10% in the US – and raise the threshold to qualify for the top tax rate to 60,000 euros (roughly $87,774) from 40,000 euros ($58,516) – the top rate in the US hits at $372,950 for singles. Those strategies helped her win for her party, the Christian Democratic Union, together with their sister party in Bavaria, the Christian Social Union.
Of course, “win” is relative. Voter turn out was a record low and Merkel’s own party saw its worst “victory” in post-war voting. Many blame a bleak economy for the turnout.
As in the US, critics are calling Merkel’s plans for tax cuts dangerous, noting that Germany plans to double their foreign debt next year to record levels. Nonetheless, Merkel and her party believe that the cuts will spur the economy forward.
She will face at least one challenge: consensus. She owes part of her victory to the Free Democrat party, currently led by Guido Westerwelle. Westerwelle wants even more severe tax cuts than Merkel has promised. Taxes could prove to be something of a sticking point for the two moving forward. Heinrich Oberreuter, a political science professor at the University of Passau, has predicted that taxes will be “the Achilles’ heel of the Free Democrats and the (new) coalition as a whole,” claiming that tax cuts just aren’t possible in the current economic climate.
I guess we’ll see… In the meantime, the euro is expected to jump today on the news.
If the news that US tax revenues have fallen was disturbing, then this may be even worse: China’s tax revenues are expected to grow by 10% in 2009. The increase comes on the heels of a successful 2008 year in China, where tax revenues climbed 18.8% to 5.42 trillion yuan ($792.68 billion).
The “global crisis” is not affecting all nations the same. While it’s true that Chinese tax revenues were not as strong as projected, they still far outpaced US revenues. And it’s a trend that is expected to continue. The Chinese expect to bring in nearly 5.98 trillion yuan ($875.4 billion) next year, an increase of nearly 10%.
Why the increase? For one, Chinese industry is booming again. Industrial sectors are seeing vigorous growth, especially in steel and metals. The Chinese are one of the largest export countries in the world.
As someone who lives near one of the former steel hotbeds of the US, I find this a little sad. AISI (American Iron and Steel Institute) reported earlier this month that the US steel industry was “operating at only 53% capacity utilization and with imports year-to-date taking a quarter of the U.S. market.”
As our steel mills and automotive companies shut down, we’ve become a country that doesn’t make things anymore. Arguably only four of the top ten companies in the US actually “make” things (GM, GE, Ford and Hewlett-Packard as ranked by Fortune). We depend heavily on imports. In my brief survey this morning on twitter, most were unable to think of more than a handful of manufacturers in the US – and the lion’s share of those named were technology companies like Apple and Microsoft, which may be based in the US but actually manufacturer in places like China. (Though, in an ironic turn, I was informed that the world’s largest manufacturer of fortune cookies is located in Brooklyn.)
I have to think that this change of direction from manufacturing and agricultural based to overwhelmingly service based businesses has affected our bottom line, not just in terms of our collective budgets but in terms of taxes. As in the US, taxes account for most of the revenue in China. Value-added (VAT), corporate income and business tax revenues contributed about 70% of the increased revenue, according to the Chinese government.
But how do you tax a shifting economy? As you’ve no doubt noted over the past year, questions in the US about how to tax internet services and sales have become increasingly important. It’s easy to tax a piece of steel made in Bethlehem, but how do you tax a sale of a book when the site of the server is in, say, Japan?
And in an economy heavily dependent on real estate transactions and technology providers, how do we tax? Do we tax on the cost of the transaction (like a VAT), the gain from the transaction (like we do for real estate) or the wages attributable to the transaction (like we largely do now)? If we can move those transactions “off shore”, how does that affect how we tax them?
The point is that our current tax system is based on our “old” economy. We’ve been slow to make changes, to react to differences in our outputs. And it shows.
More “old world” countries like China and Germany have been slow to change their tax systems, too. But interestingly, the backbones of those economies, while evolving, do not seem to have shifted as dramatically as those in the US. Those countries, while adapting to new technologies, are still heavily manufacturer-based, 50% and 30%, respectively. In the US, manufacturer-based businesses now account for less than 20% of the economy – and that number is rapidly shrinking. (Stats by CIA’s World Fact Book)
I’m not suggesting that returning to a manufacturing-based economy is the answer to our current woes. Nor am I suggesting that we model our economy after the Chinese or German economies. But the first thing you learn in business that if something isn’t working, you try something else. We can’t keep plugging along just hoping for change, we need a better plan. We’re wise to heed the words of Winston Churchill who said: There is nothing wrong with change, if it is in the right direction.
[Editor's note: I got an email that a better video clip for this post would have been "Shutting Detroit Down" by John Rich. Believe it or not, I've posted that one before. You can see it here:http://www.taxgirl.com/shutting-detroit-down/]
Germany, like the US, has been highly critical of countries considered to be tax havens. Mostly, those are countries outside of Europe with financial and banking secrecy laws meant to woo (mostly) westerners with the lure of escaping taxation. There are a few notable exceptions within Europe: Luxembourg, Liechtenstein and Switzerland.
All three are small, wealthy countries which lean heavily upon their allies. Luxembourg, in particular, has no navy, no air force and approximately 800 citizens in its army. It looks to its neighboring allies for military protection, as well as for sources of income. Heavily dependent on finance, it follows the US as the second largest investment fund center in the world and is the most important private banking center among countries that have converted to the Euro.
So while the three claim to not care what other countries think about their banking secrecy laws – and the source of their wealth – they clearly do, with both Switzerland and Liechtenstein taking steps to appease their friends and neighbors with promises of a more transparent banking process.
But Luxembourg won’t go quietly. The tiny country is now fighting a very public war of words with Germany. On Sunday, Luxembourg’s prime minister complained about recent comments made by Germany’s Finance Minister Peer Steinbrueck. Steinbrueck has been extremely critical of Switzerland, Luxembourg and Liechtenstein, down to outright accusing them of aiding tax evasion. Steinbrueck has actually encouraged others to crack down on those countries engaging in such behavior, with his party chair going so far as to say that “in the old times one would have sent in troops” to combat tax havens.
Luxembourg Prime Minister Jean-Claude Juncker was not laughing. “We don’t find that funny,” he was quoted by Der Spiegel. “We suffered under German occupation. Thank God we no longer resolve our problems with soldiers.” He continued, “We don’t talk that way about the Germans. And the Germans have no right to talk that way about Luxembourgers.”
German Chancellor Angela Merkel made what almost sounds like an apology (almost) when she said, “If there has been irritation, I as head of government will do everything I can so that it is dispelled quickly.”
Merkel, however, also made it clear that she welcomed changes in banking secrecy laws as promised by her neighboring countries. It is not certain when those changes will occur as Luxembourg, Liechtenstein and Switzerland have made no secret of the fact that they feel bullied into accommodating the wishes of their allies. Not surprising, since the three countries are somewhat stalwarts of tradition. Luxembourg’s motto perhaps sums this up best: “Mir wëlle bleiwe wat mir sinn” or “We want to remain what we are.”
Switzerland likes to think of itself as a neutral tax haven. Germany, however, thinks that its much more menacing than that, with Peer Steinbrück, the German finance minister, out and out accusing the Swiss of trolling for tax evaders, saying:
Switzerland offers conditions that invite the German taxpayer to evade taxes.
Steinbrück went so far as [...]
After vowing not to change its banking system despite a tax scandal spiraling out of control, the principality of Liechstenstein may be changing its mind.
Prime Minister Otmar Hasler has reportedly told the Swiss newspaper Neue Zuercher Zeitung that “the reform process has already begun and I support it being continued.” He says that he [...]
Last week, hundreds of wealthy Germans had their homes and offices searched in Frankfurt, Munich, Stuttgart, Hamburg and Ulm as German officials crack down on what is perceived as massive tax fraud.
The German government believes that as much as €3.4 billion ($5 billion US) have been transferred to Liechtenstein in an attempt to evade taxation [...]
Germany is getting tough on tax evaders hot on the heels of Zumwinkel’s arrest. Much of the money is headed Liechtenstein, a haven for tax evaders because of its strict confidentiality laws.
Liechtenstein doesn’t want to cooperate – they cite high German taxes as a reason for the mass exodus of cash. Germany has [...]
German prosecutors have accused Klaus Zumwinkel, one of the country’s most prominent business executives, of tax evasion. Zumwinkel is the chief executive of Deutsche Post and head of the supervisory board of Deutsche Telekom.
Zumwinkel was questioned and released by investigators after posting bail. He is suspected of evading 1 million euros (worth $1.45 [...]
Many of my husband’s clients are likely breathing a sigh of relief this morning. He represents a number of German corporations who pay tax rates which are much higher than their European cousins – and generally much higher than companies in the United States. In order to compete in an increasingly global market, [...]
